Pearson in talks to sell Economist

Pearson is in advanced talks to sell its 50 percent stake in the Economist magazine, the company confirmed on Saturday.

The British education giant acknowledged it was in discussions with the magazine’s board and trustees after POLITICO reported on its plans early Saturday morning.

Existing Economist shareholders led by John Elkann, heir to the Italian Agnelli industrial fortune and a member of the magazine’s board, are working on a potential buyout of Pearson’s stake, according to people familiar with the talks. Mr. Elkann was not available for comment, a spokesman said.

On Saturday afternoon, the Agnelli family’s EXOR investment arm confirmed that it is in talks about “increasing its investment in the” Economist Group, but added that “were it to proceed, EXOR’s increased investment would in any event represent a minority shareholding.”

The Economist has a multi-tiered share structure that makes it all but impossible for one party to get full control. Family shareholders control seven of the board’s 13 seats with Pearson nominating the remainder. In order to safeguard the publication’s independence, however, there is also a group of trustees whose approval is required for important decisions, including the sale of ownership stakes.

If there’s not enough interest from family shareholders to buy Pearson’s entire stake, one option under discussion is for an investment bank to purchase the remaining shares to allow Pearson to cash out. The bank could the sell the shares at a later date.

Sources said that Pearson could get as much as £500 million for its stake, although the price is subject to ongoing negotiations.

The planned deal, which would come on the heels of Pearson’s sale of the Financial Times to Japan’s Nikkei earlier this week, would represent the 171-year-old U.K. group’s latest major divestiture as it seeks to focus on its core education business.

The price tag implies a value for the entire Economist Group of £1 billion, a multiple of 17 times the company’s annual operating earnings of £60 million. That’s about half the 35 times the FT’s operating profit that Nikkei agreed to pay Pearson. But in contrast to that sale, the Economist deal would not offer the buyer a controlling stake.

According to people familiar with the discussions, a number of suitors looked at the Economist along with the FT, including Bloomberg, Thomson Reuters and Axel Springer, co-owner of POLITICO’s European edition.

However, the Economist’s complex governance structure, which would mean those media companies would not have gained full control, and resistance to a sale among the other shareholders — particularly from the Rothschild family — prompted the decision to try to sell within the existing universe of owners, a person familiar with the talks said.

Families on the board

The Agnellis are one of several families with major stakes in the Economist. The 39-year-old Elkann, who is chairman of Fiat Chrysler and heads EXOR, is also a director at Rupert Murdoch’s News Corp. The family is a major shareholder in Corriere Della Sera, an influential Italian newspaper.

One source said that the deal was initially intended to be announced at the same time as Pearson’s sale of the FT at Pearson’s half-year earnings this week. However, another person familiar with the negotiations said that an agreement may still be weeks away.

Pearson declined to comment early Saturday, then issued a statement from a spokesman at midday: “Pearson confirms it is in discussions with The Economist Group Board and trustees regarding the potential sale of our 50% share in the Group. There is no certainty that this process will lead to a transaction.”

Founded in 1843 in London, the weekly “newspaper” as the Economist refers to itself, has long been an influential voice in global journalism, renowned for its sharp, often irreverent analysis of the world stage. Like the FT, the Economist is considered a trophy asset with an influence that outstrips its global circulation of 1.6 million.

The remaining 50 percent of the Economist not controlled by Pearson is owned by a diverse group of shareholders including Evelyn Robert Adrian de Rothschild, an heir to the banking dynasty and a former chairman of the magazine group. His wife, American-born Lynn Forester de Rothschild, is a member of the Economist’s board.

The Rothschild Group, the boutique M&A firm controlled by the family, advised Nikkei on its purchase of the FT.

Under a complex shareholder agreement, Pearson would have to obtain the approval of four trustees charged with preserving the magazine’s legacy and independence before transferring any shares to a different owner. That narrows considerably the pool of potential buyers.

Pearson was selective as to whom it sold the FT. According to a report in that newspaper, discussions were held with only five media companies that were considered suitable buyers: Bloomberg, Thomson Reuters, Vivendi, Axel Springer and Nikkei.

Bloomberg, the financial data services firm controlled by former New York Mayor Michael Bloomberg, has long been seen a potential suitor for the Economist. Its top ranks include Economist alumni John Micklethwait, who was the magazine's editor-in-chief before he was poached to head Bloomberg News in December, and Justin Smith, the CEO of the Bloomberg Media Group. Bloomberg, the company's founder, is an unabashed fan of the magazine.

Google Chairman Eric Schmidt joined the board of the Economist Group in late 2013, prompting speculation that the Silicon Valley giant might one day have designs on the magazine.

Six feverish weeks

Nikkei won the bidding for the FT at the last minute, outmaneuvering Axel Springer, the German media group whose stable of assets includes a 50 percent stake in POLITICO's European edition.

Springer offered about £750 million for the FT, compared to Nikkei’s winning bid of £844 million.

The auction went down to the wire on Thursday, with Pearson informing Springer after lunch that it had lost. Springer, which had been in discussions with Pearson for about a year, was not given the chance to submit a higher bid, according to a person close to the sales process. Nikkei and Pearson announced the sale shortly thereafter.

Springer first approached Pearson about a year ago and initially discussed a more limited partnership, according to people familiar with the talks. As those discussions became more serious, Pearson signalled within the past six months that it might be willing to sell the entire stake in the FT.

The negotiations on a sale of the FT began in earnest about six weeks ago. By then, Pearson was engaged in parallel but separate talks to dispose of its stakes in the FT and the Economist.

This article was updated to include a statement from Pearson and EXOR, and additional reporting.